Telstra ready to face regulator

Telstra
will lodge its much-awaited structural separation undertaking with the Australian Competition and Consumer Commission within days – a critical move in the telco’s efforts to complete its $11 billion agreement with the Gillard government.

Telstra chief executive
David Thodey
signalled to The Australian Financial Review last month that he would have to reconsider the deal if the watchdog seeks to impose punitive regulations in the transition to the national broadband network.

The ACCC must approve Telstra’s undertaking before the company can put the deal to its 1.4 million shareholders, whose investments remain close to historic lows amid ongoing uncertainty and some investor scepticism about the agreement.

It is now more than a month since Telstra signed a definitive heads of agreement with Labor and NBN Co to hand its fixed line monopoly to the government-owned network.

Telstra’s copper-based access network, which connects the vast majority of Australian homes and businesses, will be closed down gradually during the NBN’s 10-year construction and replaced by the high-speed fibre-optic network.

While that agreement appears likely to meet the ACCC’s definition of structural separation – as guided by Communications Minister
Stephen Conroy
– Telstra’s rivals are more concerned about the transitional rules the company will have to abide by when offering them access to its copper during the decade before the NBN is completed.

Telstra’s competitors, including Optus, iiNet and Internode, have long claimed that the company has abused its fixed-line monopoly to benefit its own retail arm and are anxious to see what interim arrangements Telstra has agreed to.

Telstra will spell out its proposed arrangements within its undertaking to the ACCC, which will run to hundreds of pages.

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Last month, the company greeted without complaint guidance issued by Senator Conroy to the ACCC on how to assess whether the looming undertaking would meet the government’s definitions of “equivalence and transparency".

But Mr Thodey also told the Financial Review: “If there is requirement put on us by the ACCC that costs us a lot of money, of course it’s going to have an impact on us.

“If it contributes to greater transparency and equivalence, of course we will do it, but if it affects our shareholders negatively, we will have to look at that very seriously."

Telstra still aims to put the deal to a shareholder vote at its annual meeting in Sydney, due on October 18, although, with less than three months to go, that deadline looks challenging.

The company, which had originally set a July 1 deadline for a vote, has now set a December 20 drop-dead date for a vote, in what observers believe is an effort to focus the minds of outgoing ACCC chairman
Graeme Samuel
and his successor,
Rod Sims
.

Telstra shares plunged 5 per cent to $2.88 in the 48 hours after the pact was announced, amid concerns about surprise costs associated with the deal and fears that the ACCC could yet scupper it.

The shares have since clawed back to the $3 level, down 2¢ yesterday, but remain well below their five-year high of $5.07 and the $4-plus levels of late 2008, prior to the company’s controversial exclusion from Labor’s original NBN proposal.

Since then Telstra has overhauled its management and agreed to give up its historic monopoly after Labor threatened to break up the company.